Canada: Draft Abuse Of Dominance Guidelines Both Clarify And Confuse

Last Updated: January 26 2009
Article by Christopher Hersh and Mark Nicholson

On January 17, 2009, the Competition Bureau released its Draft Updated Enforcement Guidelines for the Abuse of Dominance Provisions for public comment. While the Draft Guidelines represent a needed clarification of the Bureau's enforcement approach to the abuse of dominance provisions in light of the Canada Pipe decision, they advocate a broad approach to key substantive issues that creates the potential for considerable confusion for firms doing business in Canada.

Key issues raised by the Draft Guidelines include:

  1. the application of the "but for" competitive effects test;
  2. how the Bureau will assess whether a business justification is "valid"; and
  3. that independent conduct could be viewed as "joint" abuse of dominance.

If adopted in their current form, the Draft Guidelines will increase the existing uncertainty businesses face when determining how the abuse provisions apply to their operations. In addition to creating compliance concerns for companies with large market shares, the Draft Guidelines would require businesses who previously considered themselves to be "too small" to be concerned about the abuse of dominance provisions to rethink this view.

The "But For" Test

Consistent with the decision in Canada Pipe, the Draft Guidelines state that the Bureau will assess whether the conduct at issue has the requisite anti-competitive effect by considering whether "'but for' the practice in question, would there be substantially greater competition in the relevant market in the past, present or future?" The application of the "but for" test, can include considerations such as whether "but for" the conduct at issue, would prices be substantially lower, or quality, innovation or choice substantially higher, or the ability of consumers to switch between products/suppliers substantially higher.

In addition to the hypothetical nature of the "but for" test, the Draft Guidelines state that the Bureau reserves the right to adopt other tests to determine the competitive effects of the conduct at issue (an approach endorsed by the Federal Court of Appeal in the Canada Pipe case). Unfortunately, the Bureau did not take the opportunity offered by the Draft Guidelines to provide any insight as to the other possible tests it might use, or when it would deviate from the "but for" test. This open-ended approach to enforcement and complete lack of guidance on this point will increase the uncertainty businesses face in assessing risk under the abuse provisions.

Business Justification

Under the Draft Guidelines, the Bureau's position is that a valid business justification is not a "strict defence...but rather an additional factor" in determining whether the conduct at issue is an "anti-competitive act." According to the Draft Guidelines, there must be a "credible efficiency or pro-competitive rationale" such as reducing costs, or other similar types of improvements for the Bureau to consider a business justification as valid. In assessing this issue, the Bureau has indicated that it will only accept the validity of a business justification where it can be demonstrated that the pro-competitive effects could not have been achieved by other, less competitively-harmful, means. This makes it difficult for firms to assess the risk associated with a particular business initiative, as they face the prospect of having their business activities second-guessed by the Bureau after the fact and with the benefit of hindsight.

Novel Approach To "Joint" Dominance

The most unexpected aspect of the Draft Guidelines is their complete reversal of the Bureau's previous approach to the notion of joint abuse of dominance. According to the Draft Guidelines, the Bureau's position is that firms can be engaged in joint abuse of dominance where they are "each engaging in anticompetitive behaviour such that together they have market power." In other words, there would be no requirement for businesses to coordinate their conduct - independently adopting similar business practices (for example, common contractual provisions) could be sufficient for the Bureau to view them as engaging in "joint" abuse of dominance. In contrast, the guidelines now in place clearly require something more than independent parallel behaviour for the Bureau to conclude that firms may have engaged in joint abuse.

In our view, the position taken in the Draft Guidelines on this issue is not supported by the language of the abuse provisions, jurisprudence or economic theory - a view which seems to be substantiated by the complete lack of cited authority in support of the Bureau's position on this issue. If the Draft Guidelines are adopted as currently drafted, firms who did not previously view themselves as being impacted by the abuse provisions would have to consider whether they could be subject to proceedings under the joint abuse of dominance provisions simply because they have independently adopted common industry practices.

Summary

While the Draft Guidelines do provide some insight into the Bureau's enforcement approach, they also increase the potential uncertainty faced by businesses. Should the Draft Guidelines be accepted in their current form, firms doing business in Canada will have to carefully reconsider how the abuse of dominance provisions apply to their business initiatives and practices under this new paradigm.

The Bureau has invited the public to submit comments on the Draft Guidelines by April 20, 2009.

The Bureau's press release announcing the Draft Guidelines can be viewed at: http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/02950.html

An electronic copy of the Draft Guidelines can be viewed at: http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/02942.html

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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